The Story of Box: A Unicorn’s Journey to Public Success

When
Box
(ticker: BOX) went public in early 2015, it was considered by many as just another unicorn trying to find its legs.

Three-and-a-half years later, the company is now just another public tech company. But that alone makes Box stand out; it’s the unusual example of a unicorn turned public success. The journey has required a few course corrections.

Box’s transformation has taken it from consumer file sharing to an all-in-one service for large, venerable companies that are jettisoning their decades-old, bloated enterprise-software suites for a mix of software-as-a-service apps from different companies.

The stock is up 29% since its January 2015 initial public offering and 36% in the past 12 months, giving the company a market value of $3.6 billion. Box’s recent second-quarter results, in which it posted a 21% jump in revenue to $148.2 million and a smaller-than-expected loss of five cents in earnings per share, offer further evidence that it’s headed in the right direction.

Up next: Box forecasts $600 million in revenue for its current fiscal 2019, and $1 billion in revenue by fiscal 2022. The company expects its first quarter of profits on an adjusted basis in the fiscal fourth quarter that ends in January.

The early days of Box’s selling file sharing and collaboration have largely been replaced by big corporate wins. One measure of Box’s success is its penetration of the Fortune 500—from 52% in the second quarter of 2016 to 69% in the same quarter of fiscal 2019. About 58% of Box’s total revenue comes from enterprises of 2,000 employees or more.

In Box’s recently completed fiscal quarter, it closed 50 deals of more than $100,000, compared with 40 a year ago; 11 deals of more than $500,000, versus eight a year ago; and two deals of more than $1 million, compared with four a year ago. It expects a strong pipeline of seven-figure deals in the back half of this year.

But in encouraging its salespeople to pursue bigger deals, Box increasingly faces competition from deeper-pocketed competitors in a total addressable market pegged at $45 billion, based on market research by Gartner and IDC.

Box’s aspiration to be a heavy hitter in “The Future of Work” category, broadly defined as the ability to “ingest any file from any endpoint, automate the workflow, and run analytics” for gigantic business customers, puts it squarely up against
Microsoft
(MSFT),
Dropbox
(DBX), privately held Slack,
Atlassian
(TEAM),
Smartsheet
(SMAR),
Appian
(APPN), and a few dozen others, says Canaccord Genuity analyst Richard Davis, who has a Buy recommendation and $30 price target on Box. Box shares closed at $24.55 on Friday.

“To say this is a competitive space is an understatement,” Davis wrote last month.

It’s just part of a decadelong journey, says Aaron Levie, the fast-talking Box CEO, in which Box’s customers have grown, in succession, from individuals to teams of people to small business to mid-size business to large business to installations of more than 100,000 users.

There have been bumps along the way. A year after it went public, Box shares slumped 43%, to $10.76, as it struggled to differentiate itself in a crowded field. But its stock has steadily risen as it added marquee names to its list of more than 87,000 customers that includes
General Electric
(GE),
Coca-Cola
(KO),
Eli Lilly
(LLY), and investment-management and real estate services firm
Jones Lang Lasalle
(JLL).

“This is an old industry built on manual processing” of a lot of paper for decades, Rehan Ashroff, director of the innovation lab and new ventures at Farmers Insurance Group, a Box customer since mid-2016, tells Barron’s. Box technology is accessible to Farmers’ more than 20,000 employees.

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Since it signed on with Box to help manage files and build customized applications, Farmers increasingly has been experimenting with how machine learning could free up time for claims adjusters to tackle more complicated customer issues such as car insurance claims involving severe damage and multiple parties.

“We’ve been able to be a product-centric company for enterprises without losing the innovation, speed, and agility of a consumer company,” Levie says, listing it as one of Box’s proudest achievements.

And, coincidentally, it is a characteristic that has spared Box from the same scrutiny over security and privacy that has dogged
Facebook
(FB),
Twitter
(TWTR), and Google for more than a year.

“We’re not saying we’re smarter,” he explains. “We are a product of our customer base of financial institutions and health care, which happen to be highly regulated. By adhering to their standards, we have to be highly conscious of security and privacy.”

For now, the 32-year-old Levie is most excited about the next phase in his company’s journey. “The Fortune 500 and beyond,” he says, “will experience a digital transformation.”

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